Your missing the obvious. Company B has registered for VAT, and will hence have to charge VAT on the management charges. Company A cannot recover that cost, hence it's now become a cost to Company A.
The VAT position of the building works needs careful analysis to determine whether, in fact, there will be much (if any) applicable VAT to recover. I'd recommend you or the client get chapter and verse from a VAT expert (I'm going to shamelessly plug www.thevatpeople.co.uk
here, they are who I turn to in matters VAT related!).
The management charge must be done on a commercial basis and with a contract in place (of some description).
You also need to factor in the increased costs in terms of book keeping and accounts production, filing costs, etc.
If the contract is being done by another company, then it needs to be an arms length transaction, so zero profit isn't really an option if you want to keep HMRC off your back.
On another note, not sure that the company is utilising it's funds to best advantage in having the properties mortgage free. Presumably the clients take no actual dividends from the company and extract the net profit via their directors loan accounts.
Not sure the newco is needed at all, total costs need to be added up over the life of the project to see if worthwhile.
Client needs to look at their net yield on funds employed - would it make more sense to remortgage and buy more properties, or extract funds for other purposes- pension, own mortgage, balancing risk and portfolio, etc.